FORM 10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2005

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

United Bankshares, Inc.

(Exact name of registrant as specified in its charter)

West Virginia		55-0641179
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

300 United Center
500 Virginia Street, East
Charleston, West Virginia		25301
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (304) 424-8704

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to 12(g) of the Act:

Common Stock, $2.50 Par Value

(Title of Class)

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes þ No o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer as defined in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     The aggregate market value of United Bankshares, Inc. common stock, representing all of its voting stock that was held by non-affiliates on June 30, 2005, was approximately $1,312,927,097.

     As of January 31, 2006, United Bankshares, Inc. had 41,940,052 shares of common stock outstanding with a par value of $2.50.

Documents Incorporated By Reference

     Definitive Proxy Statement dated April 7, 2006 for the 2006 Annual Shareholders’ Meeting to be held on May 15, 2006, portions of which are incorporated by reference in Part III of this Form 10-K.

 

 

UNITED BANKSHARES, INC.
FORM 10-K
(Continued)

As of the date of filing this Annual report, neither the annual shareholders’ report for the year ended December 31, 2005, nor the proxy statement for the annual United shareholders’ meeting has been mailed to shareholders.

CROSS-REFERENCE INDEX

		Page
Part I
Item 1. BUSINESS			4
Item 1A. RISK FACTORS			9
Item 1B. UNRESOLVED STAFF COMMENTS			11
Item 2. PROPERTIES			11
Item 3. LEGAL PROCEEDINGS			11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			11
Part II
Item 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			12
Item 6. SELECTED FINANCIAL DATA			15
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			16
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			36
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			40
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES			83
Item 9A. CONTROLS AND PROCEDURES			83
Item 9B. OTHER INFORMATION			83
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT			84
Item 11. EXECUTIVE COMPENSATION			84
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			84
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			84
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES			84
Part VI
Item 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES			85
EX-12
EX-21
EX-23
EX-31.1
EX-32.1
EX-32.1
EX-32.2

UNITED BANKSHARES, INC.

Item 1. BUSINESS

Organizational History and Subsidiaries

     United Bankshares, Inc. (United) is a West Virginia corporation registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended. United was incorporated on March 26, 1982, organized on September 9, 1982, and began conducting business on May 1, 1984 with the acquisition of three wholly-owned subsidiaries. Since its formation in 1982, United has acquired twenty-six banking institutions. At December 31, 2005, United has two banking subsidiaries (the Banking Subsidiaries) “doing business” under the name of United Bank, one operating under the laws of West Virginia referred to as United Bank (WV) and the other operating under the laws of Virginia referred to as United Bank (VA). United also owns nonbank subsidiaries which engage in other community banking services such as asset management, real property title insurance, investment banking, financial planning, and brokerage services.

Employees

     As of December 31, 2005, United and its subsidiaries had approximately 1,374 full-time equivalent employees and officers. None of these employees are represented by a collective bargaining unit and management considers employee relations to be excellent.

Web Site Address

     United’s web site address is “www.ubsi-wv.com”. United makes available free of charge on its web site the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments thereto, as soon as reasonably practicable after United files such reports with the Securities and Exchange Commission (SEC). The reference to United’s web site does not constitute incorporation by reference of the information contained in the web site and should not be considered part of this document. These reports are also available at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Business of United

     As a bank holding company registered under the Bank Holding Company Act of 1956, as amended, United’s present business is community banking. As of December 31, 2005, United’s consolidated assets approximated $6.7 billion and total shareholders’ equity approximated $635 million.

     United is permitted to acquire other banks and bank holding companies, as well as thrift institutions. United is also permitted to engage in certain non-banking activities which are closely related to banking under the provisions of the Bank Holding Company Act and the Federal Reserve Board’s Regulation Y. Management continues to consider such opportunities as they arise, and in this regard, management from time to time makes inquiries, proposals, or expressions of interest as to potential opportunities, although no agreements or understandings to acquire other banks or bank holding companies or nonbanking subsidiaries or to engage in other nonbanking activities, other than those identified herein, presently exist.

Business of Banking Subsidiaries

     United, through its subsidiaries, engages primarily in community banking and additionally offers most types of business permitted by law and regulation. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. Also offered are

individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As part of their lending function, the Banking Subsidiaries offer credit card services.

     The Banking Subsidiaries each maintain a trust department which acts as trustee under wills, trusts and pension and profit sharing plans, as executor and administrator of estates, and as guardian for estates of minors and incompetents, and in addition performs a variety of investment and security services. Trust services are available to customers of affiliate banks. United Bank (WV) provides services to its correspondent banks such as check clearing, safekeeping and the buying and selling of federal funds.

     United Brokerage Services, Inc., a wholly-owned subsidiary of United Bank (WV), is a fully-disclosed broker/dealer and a registered Investment Advisor with the National Association of Securities Dealers, Inc. (NASDAQ), the Securities and Exchange Commission, and a member of the Securities Investor Protection Corporation. United Brokerage Services, Inc. offers a wide range of investment products as well as comprehensive financial planning and asset management services to the general public.

     United Bank (WV) is a member of a network of automated teller machines known as the STAR ATM network while United Bank (VA) participates in the MOST network. Through STAR and MOST, the Banking Subsidiaries are participants in a network known as Cirrus, which provides banking on a nationwide basis.

     United through its Banking Subsidiaries offers an Internet banking service, Smart Touch Online Banking, which allows customers to perform various transactions using a computer from any location as long as they have access to the Internet and a secure browser. Specifically, customers can check personal account balances, receive information about transactions within their accounts, make transfers between accounts, stop payment on a check, and reorder checks. Customers may also pay bills online and can make payments to virtually any business or individual. Customers can set up recurring fixed payments, one-time future payments or a one-time immediate payment. Customers can also set up their own merchants, view and modify that merchant list, view pending transactions and view their bill payment history with approximately three (3) months of history.

     United also offers an automated telephone banking system, Telebanc, which allows customers to access their personal account(s) or business account(s) information from a touch-tone telephone.

Lending Activities

     United’s loan portfolio, net of unearned income, increased $231.6.million to $4.65 billion in 2005. The loan portfolio is comprised of commercial, real estate and consumer loans including credit card and home equity loans. Commercial and commercial real estate loans increased $70.27 million or 8.1% and $62.54 million or 5.9%, respectively. Real estate construction loans increased $43.76 million or 14.4% and single family residential real estate loans increased $82.63 million or 5.0% for the year of 2005. Consumer loans decreased $26.70 million or 6.6%. Interest and fees on loans for the years of 2005, 2004, and 2003 were $274.88 million, $229.15 million, and $211.10 million, respectively.

     As of December 31, 2005, approximately $310.0 million or 6.7% of United’s loan portfolio were real estate loans that met the regulatory definition of a high loan-to-value loan. A high loan-to-value real estate loan is defined as any loan, line of credit, or combination of credits secured by liens on or interests in real estate that equals or exceeds a certain percentage established by United’s primary regulator of the real estate’s appraised value, unless the loan has other appropriate credit support. The certain percentage varies depending on the loan type and collateral. Appropriate credit support may include mortgage insurance, readily marketable collateral, or other acceptable collateral that reduces the loan-to-value ratio below the certain percentage.

Commercial Loans

     The commercial loan portfolio consists of loans to corporate borrowers primarily in small to mid-size industrial and commercial companies, as well as automobile dealers, service, retail and wholesale merchants. Collateral securing these loans includes equipment, machinery, inventory, receivables, vehicles and commercial real estate. Commercial loans are considered to contain a higher level of risk than other loan types although care is

taken to minimize these risks. Numerous risk factors impact this portfolio including industry specific risks such as economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. United diversifies risk within this portfolio by closely monitoring industry concentrations and portfolios to ensure that it does not exceed established lending guidelines. Diversification is intended to limit the risk of loss from any single unexpected economic event or trend. Underwriting standards require a comprehensive credit analysis and independent evaluation of virtually all larger balance commercial loans by the loan committee prior to approval.

Real Estate Loans

     Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties. Also included in this portfolio are loans that are secured by owner-occupied real estate, but made for purposes other than the construction or purchase of real estate. Commercial real estate loans carry many of the same customers and industry risks as the commercial loan portfolio. Real estate mortgage loans to consumers are secured primarily by a first lien deed of trust. These loans are traditional one-to-four family residential mortgages. The loans generally do not exceed an 80% loan to value ratio at the loan origination date and most are at a variable rate of interest. These loans are considered to be of normal risk. Also included in the category of real estate mortgage loans are home equity loans.

Consumer Loans

     Consumer loans are secured by automobiles, boats, recreational vehicles, and other personal property. Personal loans, student loans and unsecured credit card receivables are also included as consumer loans. United monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors.

Underwriting Standards

     United’s loan underwriting guidelines and standards are updated periodically and are presented for approval by the respective Boards of Directors of each of its subsidiary banks. The purpose of the standards and guidelines is to grant loans on a sound and collectible basis; to invest available funds in a safe, profitable manner; to serve the legitimate credit needs of the communities of United’s primary market area; and to ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to: minimize loan losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program. The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant, with justification, a loan with variances from the underwriting guidelines and standards. However, the loan officer may not exceed his or her respective lending authority without obtaining the prior, proper approval from a superior, a regional supervisor, or the Loan Committee, whichever is deemed appropriate for the nature of the variance.

Secondary Markets

     United generally originates loans within the primary market area of its banking subsidiaries. United may from time to time make loans to borrowers and/or on properties outside of its primary market area as an accommodation to its customers. Processing of all loans is centralized in the Charleston, West Virginia office. As of December 31, 2005, the balance of mortgage loans being serviced by United for others was insignificant.

     On July 7, 2004, United sold its primary mortgage banking subsidiary, George Mason Mortgage, LLC (Mason Mortgage), essentially exiting the “wholesale” mortgage banking business. On a smaller scale, United Bank (WV) continues to engage in the origination and acquisition of residential real estate loans for resale. These loans are for single-family, owner-occupied residences with either adjustable or fixed rate terms, with a variety of

maturities tailored to effectively serve its markets. United Bank (WV)’s originations are predominately in its West Virginia markets. Mortgage loan originations are generally intended to be sold in the secondary market on a best efforts basis.

     During 2005, United originated $72.2 million of real estate loans for sale in the secondary market and sold $72.9 million of loans designated as held for sale in the secondary market. Net gains on the sales of these loans during 2005 were $1.1 million.

     The principal sources of revenue from United’s mortgage banking business are: (i) loan origination fees; (ii) gains or losses from the sale of loans; and (iii) interest earned on mortgage loans during the period that they are held by United pending sale, if any.

Investment Activities

     United’s investment policy stresses the management of the investment securities portfolio, which includes both securities held to maturity and securities available for sale, to maximize return over the long-term in a manner that is consistent with good banking practices and relative safety of principal. United currently does not engage in trading account activity. The Asset/Liability Management Committee of United is responsible for the coordination and evaluation of the investment portfolio.

     Sources of funds for investment activities include “core deposits”. Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased, securities sold under agreements to repurchase and FHLB borrowings. Repurchase agreements represent funds that are generally obtained as the result of a competitive bidding process.

     United’s investment portfolio is comprised of a significant amount of mortgage-backed securities. Additionally, United has a substantial amount of U.S. Treasury securities and obligations of U.S. Agencies and Corporations. Obligations of States and Political Subdivisions are comprised of municipal securities with an average quality of not less than an “A” rating. Interest and dividends on securities for the years of 2005, 2004, and 2003 were $69.55 million, $63.79 million, and $60.37 million, respectively. United recognized net gains of $695 thousand, $1.1 million and $1.8 million for the years of 2005, 2004, and 2003 respectively.

Competition

     United faces a high degree of competition in all of the markets it serves. These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson, Cabell, Brooke, Hancock, Ohio, Marshall, Gilmer, Harrison, Lewis, Webster, Boone, Logan, Nicholas, Fayette, Jefferson and Raleigh Counties in West Virginia; Lawrence, Belmont, Jefferson and Washington Counties in Ohio; Montgomery County in Maryland and Arlington, Alexandria, Loudoun, Prince William and Fairfax Counties in Virginia, located adjacent to the Washington, D.C. area, which is in close proximity to Jefferson and Berkeley Counties in West Virginia’s eastern panhandle. United competes in Ohio markets because of the close proximity to the Ohio border of certain subsidiary offices. Included in United’s West Virginia markets are the five largest West Virginia Metropolitan Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Wheeling MSA and the Weirton MSA. United’s Virginia markets include the Maryland, northern Virginia and Washington, D.C. Metropolitan area. United considers the above counties and MSA’s to be the primary market area for the business of its banking subsidiaries.

     With prior regulatory approval, West Virginia and Virginia banks are permitted unlimited branch banking throughout each state. In addition, interstate acquisitions of and by West Virginia and Virginia banks and bank holding companies are permissible on a reciprocal basis, as well as reciprocal interstate acquisitions by thrift institutions. These conditions serve to intensify competition within United’s market.

     As of December 31, 2005, there were 69 bank holding companies operating in the State of West Virginia registered with the Federal Reserve System and the West Virginia Board of Banking and Financial Institutions and 92 bank holding companies operating in the Commonwealth of Virginia registered with the Federal Reserve System and the Virginia Corporation Commission. These holding companies are headquartered in various states and control banks throughout West Virginia and Virginia, which compete for business as well as for the acquisition of additional banks.

Economic Characteristics of Primary Market Area

     As of December 2005, West Virginia’s unemployment rate was 4.2% while the national rate was 4.6%. The 4.2% unemployment rate was the lowest December rate on record for the state. The total number of unemployed residents was down 2,800 for the year of 2005 as compared to 2004. Population outflows that have constrained faster economic growth in West Virginia may be moderating. In 2002, the U.S. Census Bureau estimated that the state’s population increased marginally. While substantially less than the national average, the increase was a substantial improvement over the six prior years, during which time the state’s population base shrank.

     United’s northern Virginia subsidiary banking offices are located in markets that reflect very low unemployment rate levels and increased wage levels over a year ago. According to information available from the Virginia Employment Commission, Virginia’s unemployment rate as of December 2005 was 3.0% with just 119,900 jobless workers. The 3.0% December 2005 unemployment rate was the lowest recorded in Virginia in fifty-five months. The December 2005 unemployment rate compares favorably with both the Virginia December 2004 jobless rate of 3.4% and the U.S. December 2005 unemployment level of 4.6%. The Northern Virginia metropolitan area’s unemployment rate was at 2.1% in December 2005, the lowest among Virginia’s ten metropolitan areas.

Regulation and Supervision

     United, as a bank holding company, is subject to the restrictions of the Bank Holding Company Act of 1956, as amended, and is registered pursuant to its provisions. As such, United is subject to the reporting requirements of and examination by the Board of Governors of the Federal Reserve System (“Board of Governors”).

     The Bank Holding Company Act prohibits the acquisition by a bank holding company of direct or indirect ownership of more than five percent of the voting shares of any bank within the United States without prior approval of the Board of Governors. With certain exceptions, a bank holding company also is prohibited from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank, and from engaging directly or indirectly in business unrelated to the business of banking, or managing or controlling banks.

     The Board of Governors of the Federal Reserve System, in its Regulation Y, permits bank holding companies to engage in preapproved non-banking activities closely related to banking or managing or controlling banks. Approval of the Board of Governors is necessary to engage in certain other non-banking activities which are not preapproved or to make acquisitions of corporations engaging in these activities. In addition, on a case-by-case basis, the Board of Governors may approve other non-banking activities.

     On July 30, 2002, the President of the United States signed into law the Sarbanes-Oxley Act of 2002 (Act), a broad accounting, auditing, disclosure and corporate governance reform law. The legislation was passed in an effort to increase corporate responsibility by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws and to allow stockholders to more easily and efficiently monitor the performance of companies and directors.

     As a bank holding company doing business in West Virginia, United is also subject to regulation and examination by the West Virginia Board of Banking and Financial Institutions (the “West Virginia Banking

Board”) and must submit annual reports to the West Virginia Banking Board. Further, any acquisition application that United must submit to the Board of Governors must also be submitted to the West Virginia Banking Board for approval.

     United is also registered under and is subject to the requirements of the Securities Exchange Act of 1934, as amended. Generally, United must file under the Securities Exchange Act of 1933 to issue additional shares of its common stock.

     The Banking Subsidiaries, as state member banks, are subject to supervision, examination and regulation by the Federal Reserve System, and as such, are subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder. Each bank is subject to regulation by its state banking authority.

     The deposits of United’s Banking Subsidiaries are insured by the Federal Deposit Insurance Corporation (“FDIC”) to the extent provided by law. Accordingly, these banks are also subject to regulation by the FDIC.

Item 1A. RISK FACTORS

Changes in interest rates may adversely affect United’s business

     United’s earnings, like most financial institutions, are significantly dependent on its net interest income. Net interest income is the difference between the interest income United earns on loans and other assets which earn interest and the interest expense incurred to fund those assets, such as on savings deposits and borrowed money. Therefore, changes in general market interest rates, such as a change in the monetary policy of the Board of Governors of the Federal Reserve System or otherwise beyond those which are contemplated by United’s interest rate risk model and policy could have an effect on net interest income. For more information concerning United’s interest rate risk model and policy, see the discussion under the caption “Quantitative and Qualitative Disclosures About Market Risk” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Loss of United’s Chief Executive Officer or other executive officers could adversely affect its business

     United’s success is dependent upon the continued service and skills of its executive officers and senior management. If United loses the services of these key personnel, it could have a negative impact on United’s business because of their skills, years of industry experience and the difficulty of promptly finding qualified replacement personnel. The services of Richard M. Adams, United’s Chief Executive Officer, would be particularly difficult to replace. United and Mr. Adams are parties to an Employment Agreement providing for his continued employment by United through March 31, 2011.

United operates in a highly competitive market

     United faces a high degree of competition in all of the markets it serves. United considers all of West Virginia to be included in its market area. This area includes the five largest West Virginia Metropolitan Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Wheeling MSA and the Weirton MSA. United serves the Ohio counties of Lawrence, Belmont, Jefferson and Washington primarily because of their close proximity to the Ohio border and United banking offices nearby in West Virginia. In Virginia, United competes in the Northern Virginia counties of Arlington, Loudoun, Prince William and Fairfax. In addition, United has offices in the Washington, D.C. MSA and considers this part of its market. In Maryland, United has offices in Montgomery county. United considers all of the above locations to be the primary market area for the business of its banking subsidiaries.

     There is a risk that aggressive competition could result in United controlling a smaller share of these markets. A decline in market share could lead to a decline in net income which would have a negative impact on stockholder value.

Dividend payments by United’s subsidiaries to United and by United to its shareholders can be restricted

     The declaration and payment of future cash dividends will depend on, among other things, United’s earnings, the general economic and regulatory climate, United’s liquidity and capital requirements, and other factors deemed relevant by United’s board of directors. Federal Reserve Board policy limits the payment of cash dividends by bank holding companies, without regulatory approval, and requires that a holding company serve as a source of strength to its banking subsidiaries.

     United’s principal source of funds to pay dividends on its common stock is cash dividends from its subsidiaries. The payment of these dividends by its subsidiaries is also restricted by federal and state banking laws and regulations. As of December 31, 2005, an aggregate of approximately $17.34 million and $31.18 million was available for dividend payments from United Bank (WV) and United Bank (VA), respectively, to United without regulatory approval.

Downturn in the local economies may adversely affect its business

     United’s business is concentrated in the West Virginia and Northern Virginia market areas. As a result, its financial condition, results of operations and cash flows are subject to changes if there are changes in the economic conditions in these areas. A prolonged period of economic recession or other adverse economic conditions in one or both of these areas could have a negative impact on United. United can provide no assurance that conditions in its market area economies will not deteriorate in the future and that such a deterioration would not have a material adverse effect on United.

There are no assurances as to adequacy of the allowance for credit losses

     United believes that its allowance for credit losses is maintained at a level adequate to absorb any probable losses in its loan portfolio given the current information known to Management.

     Management establishes the allowance based upon many factors, including, but not limited to:

	•		historical loan loss experience;
	•		industry diversification of the commercial loan portfolio;
	•		the effect of changes in the local real estate market on collateral values;
	•		the amount of nonperforming loans and related collateral security;
	•		current economic conditions that may affect the borrower’s ability to pay and value of collateral;
	•		sources and cost of funds;
	•		volume, growth and composition of the loan portfolio; and
	•		other factors management believes are relevant.

     These determinations are based upon estimates that are inherently subjective, and their accuracy depends on the outcome of future events, so ultimate losses may differ from current estimates. Depending on changes in economic, operating and other conditions, including changes in interest rates, that are generally beyond its control, United’s actual loan losses could increase significantly. As a result, such losses could exceed United’s current allowance estimates. United can provide no assurance that its allowance is sufficient to cover actual loan losses should such losses differ substantially from our current estimates.

     In addition, federal and state regulators, as an integral part of their respective supervisory functions, periodically review United’s allowance for credit losses. United’s independent auditors also review the allowance as a part of their audit. Any increase in its allowance required by either the regulatory agencies or independent auditors would reduce United’s pre-tax earnings.

Item 1B. UNRESOLVED STAFF COMMENTS

     None

Item 2.  PROPERTIES

Offices

     United is headquartered in the United Center at 500 Virginia Street, East, Charleston, West Virginia. United’s executive offices are located in Parkersburg, West Virginia at Fifth and Avery Streets. United operates ninety (90) full service offices—fifty-two (52) offices located throughout West Virginia, thirty-five (35) offices throughout the Northern Virginia, Maryland and Washington, D.C. areas and three (3) in Ohio. United owns all of its West Virginia facilities except for two in the Wheeling area, two in the Charleston area, two in the Beckley area and one each in Parkersburg, Morgantown, Charles Town and Clarksburg, all of which are leased under operating leases. United leases all of its facilities under operating lease agreements in the Northern Virginia, Maryland and Washington, D.C. areas except for four offices, one each in Fairfax, Alexandria, and Vienna, Virginia and one in Bethesda, Maryland which are owned facilities. In Ohio, United leases two of its three facilities, one each in Bellaire and St. Clairsville. United leases an operations center facility in the Charleston area.

Item 3. LEGAL PROCEEDINGS

     In the normal course of business, United and its subsidiaries are currently involved in various legal proceedings. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United’s financial position.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

UNITED BANKSHARES, INC.

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock

     As of December 31, 2005, 100,000,000 shares of common stock, par value $2.50 per share, were authorized for United, of which 44,320,832 were issued, including 2,312,653 shares held as treasury shares. The outstanding shares are held by approximately 5,943 shareholders of record, as well as 6,525 shareholders in street name as of January 31, 2006. The unissued portion of United’ s authorized common stock (subject to registration approval by the SEC) and the treasury shares are available for issuance as the Board of Directors determines advisable. United offers its shareholders the opportunity to invest dividends in shares of United stock through its dividend reinvestment plan. United has also established stock option plans and a stock bonus plan as incentive for certain eligible officers. In addition to the above incentive plans, United is occasionally involved in certain mergers in which additional shares could be issued and recognizes that additional shares could be issued for other appropriate purposes.

     At its August 2004 Board of Directors meeting, a stock repurchase plan was approved whereby United could buy up to 1,775,000 shares of its common stock in the open market. During 2005, 1,151,300 shares were repurchased under the plan while 16,700 shares were repurchased to complete an earlier plan approved in 2003 to repurchase up to 1,650,000 shares.

     The Board of Directors believes that the availability of authorized but unissued common stock of United is of considerable value if opportunities should arise for the acquisition of other businesses through the issuance of United’s stock. Shareholders do not have preemptive rights, which allows United to issue additional authorized shares without first offering them to current shareholders.

     United has only one class of stock and all voting rights are vested in the holders of United’s stock. On all matters subject to a vote of shareholders, the shareholders of United will be entitled to one vote for each share of common stock owned. Shareholders of United have cumulative voting rights with regard to election of directors. At the present time, no senior securities of United are outstanding, nor does the Board of Directors presently contemplate issuing senior securities.

     There are no preemptive or conversion rights or, redemption or sinking fund provisions with respect to United’s stock. All of the issued and outstanding shares of United’s stock are fully paid and non-assessable.

Dividends

     The shareholders of United are entitled to receive dividends when and as declared by its Board of Directors. Dividends have been paid quarterly. Dividends were $1.05 per share in 2005, $1.02 per share in 2004 and $1.00 per share in 2003. Dividends are paid from funds legally available, therefore the payment of dividends is subject to the restrictions set forth in the West Virginia Corporation Act. See “Market and Stock Prices of United” for quarterly dividend information.

     Payment of dividends by United is dependent upon receipt of dividends from its Banking Subsidiaries. Payment of dividends by United’s state member Banking Subsidiaries is regulated by the Federal Reserve System and generally, the prior approval of the Federal Reserve Board (FRB) is required if the total dividends declared by a state member bank in any calendar year exceeds its net profits, as defined, for that year combined with its retained net profits for the preceding two years. Additionally, prior approval of the FRB is required when a state member bank has deficit retained earnings but has sufficient current year’s net income, as defined, plus the retained net profits of the two preceding years. The FRB may prohibit dividends if it deems the payment to be an unsafe or unsound banking practice. The FRB has issued guidelines for dividend payments by state member banks emphasizing that proper dividend size depends on the bank’s earnings and capital. See Note R - Notes to

Consolidated Financial Statements.

Market and Stock Prices of United

     United Bankshares, Inc. stock is traded over the counter on the National Association of Securities Dealers Automated Quotations System, National Market (NASDAQ) under the trading symbol UBSI.

     The high and low prices listed below are based upon information available to United’s management from NASDAQ listings. No attempt has been made by United’s management to ascertain the prices for every sale of its stock during the periods indicated. However, based on the information available, United’s management believes that the prices fairly represent the amounts at which United’s stock was traded during the periods reflected.

     The following table presents the dividends and high and low prices of United’s common stock during the periods set forth below:

		Dividends				High				Low
2006
First Quarter through January 31, 2006		$	0.27	(1)		$	38.50			$	34.46
2005
Fourth Quarter		$	0.27			$	38.55			$	32.34
Third Quarter		$	0.26			$	38.47			$	33.91
Second Quarter		$	0.26			$	36.45			$	29.82
First Quarter		$	0.26			$	38.62			$	32.00
2004
Fourth Quarter		$	0.26			$	39.35			$	34.36
Third Quarter		$	0.26			$	36.09			$	30.35
Second Quarter		$	0.25			$	33.67			$	29.15
First Quarter		$	0.25			$	31.60			$	29.36

Issuer Repurchases

     The table below includes certain information regarding United’s purchase of its common shares during the three months ended December 31, 2005:

										Total Number				Maximum
		Total								of Shares				Number of
		Number of								Purchased as				Shares that May
		Shares								Part of Publicly				Yet be Purchased
		Purchased				Average Price				Announced				Under the Plans
Period		(1) (2)				Paid per Share				Plans (3)				(3)
10/01 — 10/31/2005			100,041			$	34.29				946,300				828,700
11/01 — 11/30/2005			107,542			$	37.33				1,046,300				728,700
12/01 — 12/31/2005			105,040			$	37.49				1,151,300				623,700
Total			312,623			$	36.41

Item 6. SELECTED FINANCIAL DATA

     The following consolidated selected financial data is derived from United’s audited financial statements as of and for the five years ended December 31, 2005. The selected financial data should be read in conjuction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes contained elsewhere in this report.

		Five Year Summary
(Dollars in thousands, except per share data)		2005				2004				2003				2002				2001
Summary of Operations:
Total interest income		$	345,278			$	293,350			$	272,520			$	323,483			$	348,923
Total interest expense			124,451				88,914				95,504				129,175				171,828
Net interest income			220,827				204,436				177,016				194,308				177,095
Provision for loan losses			5,618				4,520				7,475				8,937				12,833
Other income			52,625				54,231				52,084				37,787				36,685
Other expense			121,160				137,061				129,538				109,728				93,223
Income taxes			46,265				33,771				28,010				35,211				35,600
Income from continuing operations			100,409				83,315				64,077				78,219				72,124
Income from discontinued operations before income taxes			—				20,780				20,433				14,903				11,006
Income taxes			—				6,333				5,745				4,189				3,139
Income from discontinued operations			—				14,447				14,688				10,714				7,867
Net Income			100,409				97,762				78,765				88,933				79,991
Cash dividends			44,575				44,228				42,028				40,388				38,096
Per common share:
Income from continuing operations:
Basic			2.36				1.92				1.52				1.84				1.74
Diluted			2.33				1.89				1.50				1.81				1.71
Income from discontinued operations:
Basic			—				0.33				0.35				0.25				0.19
Diluted			—				0.33				0.35				0.25				0.19
Net income:
Basic			2.36				2.25				1.87				2.09				1.93
Diluted			2.33				2.22				1.85				2.06				1.90
Cash dividends			1.05				1.02				1.00				0.95				0.91
Book value per share			15.12				14.68				14.08				12.88				11.80
Selected Ratios:
Return on average shareholders’ equity			15.66	%			15.56	%			13.86	%			16.73	%			17.51	%
Return on average assets			1.55	%			1.55	%			1.36	%			1.59	%			1.59	%
Dividend payout ratio			44.39	%			45.24	%			53.39	%			45.41	%			47.63	%
Selected Balance Sheet Data:
Average assets		$	6,465,764			$	6,295,076			$	5,809,131			$	5,591,267			$	5,041,196
Investment securities			1,501,966				1,510,442				1,510,610				1,285,490				1,428,716
Loans held for sale			3,324				3,981				1,687				5,151				9,359
Total loans			4,649,829				4,418,276				3,955,234				3,501,188				3,502,334
Assets of discontinued operations			—				—				334,340				666,147				369,552
Total assets			6,728,492				6,435,971				6,387,730				5,797,662				5,635,890
Total deposits			4,617,452				4,297,563				4,138,487				3,815,830				3,738,639
Long-term borrowings			547,731				533,755				459,663				172,444				456,436
Liabilities of discontinued operations			—				—				300,754				638,884				348,778
Total liabilities			6,093,287				5,804,464				5,772,539				5,256,123				5,129,361
Shareholders’ equity			635,205				631,507				615,191				541,539				506,529

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company’s anticipated future financial performance, goals, and strategies. The act provides a safe haven for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations.

United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involve numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by United’s statements for a variety of factors including, but not limited to: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.

INTRODUCTION

The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated.

Prior to July 7, 2004, United operated two main business segments: community banking and mortgage banking. As previously reported, on July 7, 2004, United sold its wholly owned mortgage banking subsidiary, George Mason Mortgage, LLC (Mason Mortgage). United’s mortgage banking activities were conducted primarily through Mason Mortgage, which was previously reported as a separate segment. For the years prior to 2005, Mason Mortgage is shown as discontinued operations for all periods presented. Since the sale of Mason Mortgage, United’s operations relate mainly to community banking which offers customers traditional banking products and services, including loan and deposit products, and wealth management services which include investment banking, financial planning, trust and brokerage services.

On December 30, 2005, the Executive Committee of the Board of Directors of United approved the accelerated vesting of all unvested stock options granted prior to December 30, 2005 to United employees, including executive officers, under the 2001 Stock Option Plan. The number of shares and exercise prices and other relevant terms of the options subject to the acceleration remained unchanged. As a result of the vesting acceleration, options to purchase 547,626 shares of United common stock became exercisable immediately. The grant prices ranged from $30.20 to $37.19. United feels the decision to accelerate the vesting of the options was in the best interests of shareholders as it will reduce United’s reported compensation expense in future periods. Based on changes to the accounting rules relating to the expensing of stock options that became effective on January 1, 2006, United estimates that accelerating the vesting of the options, will eliminate pre-tax compensation expenses of approximately $1.85 million, $984 thousand and $456 thousand, which otherwise would have been recognized in United’s consolidated statements of income for the years ending December 31, 2006, 2007 and 2008, respectively. United recognized a pre-tax expense of approximately $21 thousand in the fourth quarter of 2005 related to the accelerated vesting of the options.

This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included elsewhere in this document.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of United conform with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates, assumptions and judgments

that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements. Actual results could differ from these estimates. These policies, along with the disclosures presented in the financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the determination of the allowance for loan losses, income taxes, and the valuation of retained interests in securitized financial assets to be the accounting areas that require the most subjective or complex judgments, and as such, could be most subject to revision as new information becomes available. The most significant accounting policies followed by United are presented in Note A, Notes to Consolidated Financial Statements.

The allowance for credit losses represents management’s estimate of the probable credit losses inherent in the lending portfolio. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because management’s evaluation of the adequacy of the allowance for credit losses is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. In determining the components of the allowance for credit losses, management considers the risk arising in part from, but not limited to, charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. The methodology used to determine the allowance for credit losses is described in Note A, Notes to Consolidated Financial Statements. A discussion of the factors leading to changes in the amount of the allowance for credit losses is included in the Provision for Credit Losses section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

United uses derivative instruments as part of its risk management activities to protect the value of certain assets and liabilities against adverse price or interest rate movements. All derivative instruments are carried at fair value on the balance sheet. The valuation of these derivative instruments is considered critical because carrying assets and liabilities at fair value inherently result in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are provided by third party sources. Because the majority of the derivative instruments are used to protect the value of other assets and liabilities on the balance sheet, changes in the value of the derivative instruments are typically offset by changes in the value of the assets and liabilities being hedged, although income statement volatility can occur if the derivative instruments are not effective in hedging changes in the value of those assets and liabilities.

United’s calculation of income tax provision is complex and requires the use of estimates and judgments in its determination. As part of United’s analysis and implementation of business strategies, consideration is given to tax laws and regulations that may affect the transaction under evaluation. This analysis includes the amount and timing of the realization of income tax liabilities or benefits. United strives to keep abreast of changes in the tax laws and the issuance of regulations which may impact tax reporting and provisions for income tax expense. United is also subject to audit by federal and state authorities. Because the application of tax laws is subject to varying interpretations, results of these audits may produce indicated liabilities which differ from United’s estimates and provisions. United continually evaluates its exposure to possible tax assessments arising from audits and records its estimate of probable exposure based on current facts and circumstances.

Any material effect on the financial statements related to these critical accounting areas is further discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2005 COMPARED TO 2004

FINANCIAL CONDITION SUMMARY

United’s total assets as of December 31, 2005 were $6.73 billion, an increase of $292.52 million or 4.55% from year end 2004. The increase in total assets was primarily due to an increase in portfolio loans of $231.55 million or 5.24%. In addition, cash and cash equivalents increased $54.50 million or 35.51%. These increases in loans and cash more than offset an $8.48 million decrease in securities. The increase in total assets is reflected in a corresponding increase in total liabilities of $288.82 million. The increase in total liabilities was due mainly to a $319.90 million or 7.44% increase in deposits.

Borrowings decreased $36.56 million or 2.54% for the year of 2005. Shareholders’ equity increased $3.70 million or less than 1% from year end 2004. The following discussion explains in more detail the changes in financial condition by major category.

Cash and Cash Equivalents

Cash and cash equivalents increased $54.50 million or 35.51% from year end 2004. Of this total decrease, cash and due from banks increased $56.67 million and federal funds sold increased $9.15 million while interest-bearing deposits with other banks decreased $11.32 million. During the year of 2005, net cash of $112.88 million and $203.58 million was provided by operating activities and financing activities from continuing operations, respectively. Net cash of $261.96 million was used in investing activities from continuing operations. Further details related to changes is cash and cash equivalents are presented in the Consolidated Statements of Cash Flows.

Securities

Total investment securities decreased $8.48 million or less than 1% since year end 2004. Securities available for sale decreased $2.54 million or less than 1.00%. This change reflects $457.87 million in sales, maturities and calls of securities, $485.81 million in purchases and a decrease of $24.82 million in market value. Securities held to maturity declined $5.94 million which was a decrease of 2.54%. This decrease was due to maturities and calls of securities within the portfolio of $6.95 million during the year of 2005. The amortized cost and estimated fair value of investment securities, including types and remaining maturities, is presented in Note C to the Notes to Consolidated Financial Statements.

Loans

Loans held for sale in continuing operations decreased $657 thousand or 16.50% as loan sales in the secondary market exceeded loan originations for the year of 2005. Portfolio loans, net of unearned income, increased $231.55 million or 5.24% since year end 2004. The increase in portfolio loans for 2005 was primarily attributable to growths in single-family residential loans, commercial loans, commercial real estate loans and construction loans of $82.63 million or 4.97%, $70.27 million or 8.13%, $62.54 million or 5.88%, and $43.76 million or 14.42%, respectively. Consumer loans declined $26.70 million or 6.56%. The table below summarizes the change in the loan categories since year end 2004:

		At December 31
(Dollars in thousands)		2005				2004				$ Change				% Change
Loans held for sale		$	3,324			$	3,981			$	(657	)			(16.50	%)
Commercial, financial, and agricultural		$	934,780			$	864,511			$	70,269				8.13	%
Real Estate:
Single family residential			1,745,824				1,663,198				82,626				4.97	%
Commercial			1,126,095				1,063,554				62,541				5.88	%
Construction			347,274				303,516				43,758				14.42	%
Other			122,487				123,165				(678	)			(0.55	%)
Consumer			380,062				406,758				(26,696	)			(6.56	%)
Less: Unearned interest			(6,693	)			(6,426	)			(267	)			4.15	%
Total Loans, net of unearned interest		$	4,649,829			$	4,418,276			$	231,553				5.24	%

For a summary of major classifications of loans, see Note E, Notes to Consolidated Financial Statements.

Other Assets

Other assets increased $13.10 million or 8.33% since year end 2004. This increase included a $6.09 million increase in deferred tax assets related to the decline in market value of available for sale securities. In addition, prepaid pension assets increased $3.67 million, the cash surrender value of bank owned life insurance policies increased $4.54 million and the derivative asset related to a cash flow hedge increased $2.15 million. Partially offsetting these increases in other assets was a decline of $2.29 million in core deposit intangibles due to amortization.

Deposits

Total deposits at December 31, 2005 increased $319.89 million or 7.44% since year end 2004. In terms of composition, noninterest-bearing deposits increased $74.34 million while interest-bearing deposits increased $245.55 million from December 31, 2004. The increase in noninterest-bearing deposits was due mainly to a $38.66 million or 9.27% increase in commercial demand deposits. The increase in interest-bearing deposits was due primarily to growth of $160.62 million or 32.46% in certificate accounts (CDs) over $100,000 due to higher interest rates. Brokered deposits accounted for $36.69 million of this increase in CDs over $100,000. CDs less than $100,000 grew $95.34 million or 8.65% for the year of 2005 also due to the higher interest rates. The table below summarizes the change in the deposit categories since year end 2004:

		At December 31								Amount				Percentage
(Dollars In thousands)		2005				2004				Change				Change
Demand deposits		$	712,729			$	654,988			$	57,741				8.82	%
Interest-bearing checking			163,717				152,262				11,455				7.52	%
Regular savings			338,763				379,877				(41,114	)			(10.82	%)
Money market accounts			1,544,233				1,508,070				36,163				2.40	%
Time deposits under $100,000			1,202,496				1,107,471				95,025				8.58	%
Time deposits over $100,000			655,514				494,895				160,619				32.46	%
Total deposits		$	4,617,452			$	4,297,563			$	319,889				7.44	%

More information relating to deposits is presented in Note I, Notes to Consolidated Financial Statements.

Borrowings

Since year end 2004, total borrowings decreased $36.56 million or 2.54%. Short-term borrowings decreased $50.53 million or 5.57%. In terms of composition, Federal funds purchased and securities sold under agreements to repurchase decreased $69.74 million or 53.19% and $20.82 million or 3.81%, respectively. Overnight Federal Home Loan Bank (FHLB) advances increased $40.00 million or 17.78%. Long-term FHLB borrowings increased $14.50 million or 3.26%. The table below summarizes the change in the borrowing categories since year end 2004:

		December 31								Amount				Percentage
(Dollars In thousands)		2005				2004				Change				Change
Federal funds purchased		$	61,370			$	131,106			($	69,736	)			(53.19	%)
Securities sold under agreements to repurchase			525,604				546,425				(20,821	)			(3.81	%)
Overnight FHLB advances			265,000				225,000				40,000				17.78	%
TT&L note option			4,451				4,427				24				0.54	%
Long-term FHLB advances			458,818				444,322				14,496				3.26	%
Issuances of trust preferred capital securities			88,913				89,433				(520	)			(0.58	%)
Total borrowings		$	1,404,156			$	1,440,713			($	36,557	)			(2.54	%)

For a further discussion of borrowings see Notes J and K, Notes to Consolidated Financial Statements.

Shareholders’ Equity

Shareholders’ equity increased $3.70 million or less than 1% from December 31, 2004, as United continued to balance capital adequacy and returns to shareholders. The increase in shareholders’ equity was due mainly to net earnings less dividends of $55.83 million for the year of 2005. Treasury stock increased $35.45 million from year end 2004 as treasury share

repurchases exceeded stock option redemptions during year of 2005. For the year of 2005, United repurchased 1,151,300 shares under a plan approved by its Board of Directors in 2004 to repurchase up to 1.775 million shares of United’s common stock on the open market while 16,700 shares were repurchased to complete a earlier plan approved in 2003 to repurchase up to 1.65 million shares.

EARNINGS SUMMARY

As previously mentioned, on July 7, 2004, United consummated the sale of its wholly-owned mortgage banking subsidiary, Mason Mortgage. For the years prior to 2005, the results of operations for Mason Mortgage are reported as income from discontinued operations. For detailed financial data and further information related to discontinued operations, refer to Note B of the accompanying Notes to Consolidated Financial Statements. For discussion purposes, information referred to on a consolidated basis combines the results of continuing and discontinued operations.

Consolidated net income for the year of 2005 was $100.41 million or $2.33 per diluted share compared to $97.76 million or $2.22 per share for the year of 2004. These results represent a 2.71% increase in net income and a 4.96% increase in diluted earnings per share.

Income from continuing operations for the year of 2005 was $100.41 million, an increase of $17.09 million or 20.52% from the year of 2004. Diluted earnings per share from continuing operations were $2.33 and $1.89 for the year of 2005 and 2004, respectively. The results from continuing operations for the year of 2004 included before-tax penalties of $18.98 million for the prepayment of FHLB advances as compared to $406 thousand for the year of 2005. In addition, United reduced its income tax expense in the fourth quarter of 2004 by approximately $2.5 million as a result of a finalized tax examination for the years 2001 through 2003.

No income from discontinued operations was reported in 2005 as the sale of United’s mortgage banking subsidiary was completed in 2004. Income from discontinued operations for the year of 2004 was $14.45 million or $0.33 per diluted share. The results of discontinued operations for the year of 2004 included a before-tax gain of $17.0 million on the sale of United’s mortgage banking subsidiary.

The 2005 consolidated results represented a return on average shareholders’ equity of 15.66% as compared to 15.56% for the year of 2004. The return on average assets was 1.55% for both of the years of 2005 and 2004.

Net interest income from continuing operations increased $16.39 million or 8.02% for the year of 2005 when compared to 2004. Noninterest income from continuing operations decreased $1.61 million or 2.96% for 2005 when compared to 2004. Noninterest expense from continuing operations decreased $15.90 million or 11.60% over the same time period due mainly to the aforementioned decrease in prepayment penalties of FHLB advances from the year 2004 to 2005.

The effective tax rate was approximately 31.5% and 29.1% for the years ended December 31, 2005 and 2004, respectively, as compared to 30.0% for 2003.

The following discussion explains in more detail the results of operations by major category.

Net Interest Income

Net interest income represents the primary component of United’s earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2005, are summarized below.

Tax-equivalent net interest income from continuing operations for the year of 2005 was $233.42 million, an increase of $17.80 million or 8.25% from the year of 2004. Consolidated tax-equivalent net interest income for the year of 2005 was $233.42 million, an increase of $12.49 million or 5.65% from the year of 2004. United’s consolidated tax-equivalent net interest margin for the year of 2005 was 3.94%, up 10 basis points from a net interest margin of 3.84% for the year of 2004.

Tax-equivalent interest income from continuing operations for the year of 2005 was $357.87 million, an increase of $53.33 million or 17.51% from the year of 2004. This increase in tax-equivalent interest income from continuing operations was due mainly to a 61 basis point increase in the yield on average earning assets. The increase in yield was due to higher interest rates. The yield on average net loans increased 60 basis points from 5.76% in 2004 to 6.36% in 2005. The increase in average earning asset yield resulted in an increase of $31.82 million in tax-equivalent interest income from continuing operations. Average earning assets increased $318.50 million or 5.68% for the year of 2005 as compared to the year of 2004 as average net loans grew $345.98 million or 8.42%. The increase in average earning assets resulted in a $19.32 million increase in tax-equivalent interest income from continuing operations. Also, for the year of 2005, tax-equivalent interest income from continuing operations was aided by additional interest income of approximately $3.24 million from United’s asset securitization as compared to the year of 2004.

Consolidated tax-equivalent interest income for the year of 2005 increased $46.48 million or 14.93% from the year of 2004. This increase in consolidated tax-equivalent interest income was due mainly to a 63 basis point increase in the yield on average earning assets which resulted in a $34.41 million increase consolidated tax-equivalent interest income. Average earning assets grew $170.46 million or 2.96% which increased consolidated tax-equivalent interest income by $10.72 million for the year of 2005 as compared to 2004.

Interest expense from continuing operations for the year of 2005 was $124.45 million, an increase of $35.54 million or 39.97% from the year of 2004. The increase in interest expense from continuing operations for the year of 2005 was mainly due to a 64 basis point rise in the average cost of funds from the year of 2004 as a result of the higher interest rates. The increase in the average cost of funds resulted in a $31.32 million increase in the interest expense from continuing operations. The average cost of deposits was 2.06% for the year of 2005, up 61 basis points from 1.45% for the year of 2004 while the average cost of short-term borrowing was 2.43% for the year of 2005, an increase of 135 basis points from 1.08% for the year of 2004.

Consolidated interest expense increased $33.99 million or 37.58% in 2005 compared to 2004. This increase was attributed primarily to the aforementioned higher funding costs related to deposits and short-term borrowings. On a consolidated basis, the average cost of funds increased 65 basis points from 1.91% in 2004 to 2.56% in 2005. The increase in the average cost of funds resulted in an increase of $36.84 million in consolidated interest expense.

The following table shows the consolidated daily average balance of major categories of assets and liabilities for each of the three years ended December 31, 2005, 2004 and 2003 with the consolidated interest and rate earned or paid on such amount.

		Year Ended												Year Ended												Year Ended
		December 31, 2005												December 31, 2004												December 31, 2003
		Average								Avg.				Average								Avg.				Average								Avg.
		Balance				Interest				Rate				Balance				Interest				Rate				Balance				Interest				Rate
ASSETS
Earning Assets:
Federal funds sold, securities repurchased under agreements to resell & other short-term investments		$	27,481			$	850				3.09	%		$	31,794			$	408				1.28	%		$	80,449			$	1,062				1.32	%
Investment Securities:
Taxable			1,242,271				57,023				4.59	%			1,284,894				55,436				4.31	%			1,150,366				51,701				4.49	%
Tax-exempt (1) (2)			202,741				16,756				8.26	%			183,283				12,140				6.62	%			184,021				12,701				6.90	%
Total Securities			1,445,012				73,779				5.11	%			1,468,177				67,576				4.60	%			1,334,387				64,402				4.83	%
Loans, net of unearned income (1) (2) (3)			4,496,774				283,239				6.30	%			4,304,411				243,402				5.65	%			4,024,018				242,101				6.02	%
Allowance for loan losses			(43,589	)											(49,162	)											(47,866	)
Net loans			4,453,185								6.36	%			4,255,249								5.72	%			3,976,152								6.09	%
Total earning assets			5,925,678			$	357,868				6.04	%			5,755,220			$	311,386				5.41	%			5,390,988			$	307,565				5.71	%
Other assets			540,086												539,856												418,143
TOTAL ASSETS		$	6,465,764											$	6,295,076											$	5,809,131
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits		$	3,546,918			$	73,146				2.06	%		$	3,343,278			$	48,380				1.45	%		$	3,122,739			$	53,683				1.72	%
Short-term borrowings			734,228				17,816				2.43	%			685,062				7,400				1.08	%			557,039				7,361				1.32	%
Long- term borrowings			575,354				33,489				5.82	%			719,524				34,677				4.82	%			751,472				43,107				5.74	%
Total Interest-Bearing Funds			4,856,500				124,451				2.56	%			4,747,864				90,457				1.91	%			4,431,250				104,151				2.35	%
Noninterest-bearing deposits			913,629												874,999												760,220
Accrued expenses and other liabilities			54,514												43,837												49,489
TOTAL LIABILITIES			5,824,643												5,666,700												5,240,959
SHAREHOLDERS’ EQUITY			641,121												628,376												568,172
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	6,465,764											$	6,295,076											$	5,809,131
NET INTEREST INCOME						$	233,417											$	220,929											$	203,414
INTEREST SPREAD											3.48	%											3.50	%											3.36	%
NET INTEREST MARGIN											3.94	%											3.84	%											3.77	%

The following table sets forth a summary for the periods indicated of the changes in consolidated interest earned and interest paid detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year’s average rate), (ii) changes in rate (change in the average rate times the prior year’s average volume), and (iii) changes in rate/volume (change in the average volume times the change in average rate).

		2005 Compared to 2004																2004 Compared to 2003
		Increase (Decrease) Due to																Increase (Decrease) Due to
										Rate/																Rate/
		Volume				Rate				Volume				Total				Volume				Rate				Volume				Total
Interest income:
Federal funds sold, securities purchased under agreements to resell and other short-term investments		($	55	)		$	575			($	78	)		$	442			($	642	)		($	32	)		$	20			($	654	)
Investment securities:
Taxable			(1,837	)			3,598				(174	)			1,587				6,046				(2,120	)			(191	)			3,735
Tax exempt (1), (2)			1,288				3,006				322				4,616				(51	)			(519	)			9				(561	)
Loans (1),(2),(3)			11,322				27,234				1,281				39,837				16,994				(14,665	)			(1,028	)			1,301
TOTAL INTEREST INCOME			10,718				34,413				1,351				46,482				22,347				(17,336	)			(1,190	)			3,821
Interest expense:
Interest-bearing deposits		$	2,953			$	20,394			$	1,419			$	24,766			$	3,791			($	8,403	)		($	691	)		($	5,303	)
Short-term borrowings			531				9,248				637				10,416				1,692				(1,345	)			(308	)			39
Long-term borrowings			(6,949	)			7,195				(1,434	)			(1,188	)			(1,833	)			(6,886	)			289				(8,430	)
TOTAL INTEREST EXPENSE			(3,465	)			36,837				622				33,994				3,650				(16,634	)			(710	)			(13,694	)
NET INTEREST INCOME		$	14,183			($	2,424	)		$	729			$	12,488			$	18,697			($	702	)		($	480	)		$	17,515

Provision for Credit Losses

United’s credit quality continues to be sound. Nonperforming loans were $13.19 million or 0.28% of loans, net of unearned income, at December 31, 2005 compared to $10.78 million or 0.24% of loans, net of unearned income at December 31, 2004. The components of nonperforming loans include nonaccrual loans and loans that are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis. During 2005, nonaccrual loans increased $794 thousand or 12.50%. This increase in nonaccrual loans was due mainly to one large commercial loan being placed on nonaccrual at December 31, 2005. Loans past due 90 days or more increased $1.61 million or 36.48%. This increase in loans past due 90 days or more was due mainly to three (3) residential mortgage loans and two (2) commercial credits with balances between $154 thousand and $329 thousand being 90 days or more delinquent at December 31, 2005. The loans mentioned above have been properly evaluated in considering the adequacy of the company’s allowance for credit losses at December 31, 2005. Total nonperforming assets of $16.13 million, including OREO of $2.94 million at December 31, 2005, represented 0.24% of total assets at the end of 2005 as compared to 0.22% at the end of 2004.

Nonperforming assets include loans and securities on which no interest is currently being accrued, principal or interest has been in default for a period of 90 days or more and, in the case of loans, for which the terms have been modified due to a deterioration in the financial position of the borrower. Management is not aware of any other significant loans or securities, groups of loans or securities, or segments of the loan or investment portfolio not included below or disclosed elsewhere herein where there are serious doubts as to the ability of the borrowers or issuers to comply with the present repayment terms of the debt. The following table summarizes nonperforming assets for the indicated periods.

		December 31
		2005				2004				2003				2002				2001
		(In thousands)
Nonaccrual loans		$	7,146			$	6,352			$	7,523			$	6,890			$	8,068
Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest			6,039				4,425				11,052				8,461				9,522
Total nonperforming loans			13,185				10,777				18,575				15,351				17,590
Nonaccrual investment securities			—				—				—				—				10,000
Other real estate owned			2,941				3,692				3,203				4,267				2,763
TOTAL NONPERFORMING ASSETS		$	16,126			$	14,469			$	21,778			$	19,618			$	30,353

Loans are designated as impaired when, in the opinion of management, the collection of principal and interest in accordance with the loan contract is doubtful. At December 31, 2005, impaired loans were $16.55 million, an increase of $6.21 million or 59.96% from the $10.35 million in impaired loans at December 31, 2004. In addition to the one previously mentioned large commercial credit ($1.40 million) that was classified as nonaccrual at December 31, 2005, the change in impaired loans from year end 2004 included two other large (totaling $2.75 million) and several smaller commercial credits that were considered impaired in accordance with FASB Statement No. 114 (SFAS No. 114), “Accounting by Creditors for Impairment of a Loan” at December 31, 2005. These credits have been properly considered in determining the adequacy of the allowance for credit losses. For further details, along with a discussion of concentrations of credit risk, see Note E, Notes to Consolidated Financial Statements.

United maintains an allowance for loan losses and an allowance for lending-related commitments. The combined allowances for loan losses and lending-related commitments are referred to as the allowance for credit losses. At December 31, 2005, the allowance for credit losses was $52.87 million, compared to $51.35 million at December 31, 2004. As a percentage of loans, net of unearned income, the allowance for credit losses was 1.14% and 1.16% at December 31, 2005 and 2004, respectively. The ratio of the allowance for credit losses to nonperforming loans was 401.0% and 476.5% at December 31, 2005 and 2004, respectively.

For the years ended December 31, 2005 and 2004, the provision for credit losses was $5.62 million and $4.52 million, respectively. Net charge-offs were $4.10 million for the year of 2005 as compared to net charge-offs of $4.48 million for the year of 2004.

The following table summarizes United’s credit loss experience for each of the five years ended December 31:

		2005				2004				2003				2002				2001
		(Dollars in thousands)
Balance of allowance for credit losses at beginning of year		$	51,353			$	51,432			$	48,387			$	47,408			$	40,532
Allowance of purchased company at date of acquisition			—				—				3,863				—				4,673
Loans charged off:
Commercial, financial and agricultural			2,442				1,524				2,677				805				2,578
Real estate			1,422				1,518				3,365				5,192				7,090
Real estate construction																			76
Consumer and other			2,152				3,497				3,954				3,502				2,615
TOTAL CHARGE-OFFS			6,016				6,539				9,996				9,499				12,359
Recoveries:
Commercial, financial and agricultural			677				387				706				443				681
Real estate			778				1,080				601				591				557
Real estate construction																			1
Consumer and other			461				596				396				507				490
TOTAL RECOVERIES			1,916				2,063				1,703				1,541				1,729
NET LOANS CHARGED OFF			4,100				4,476				8,293				7,958				10,630
Provision for credit losses			5,618				4,520				7,475				8,937				12,833
BALANCE OF ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR			52,871				51,476				51,432				48,387				47,408
Less: Balance of allowance for credit losses, discontinued operations			—				(123	)			(123	)			(123	)			(123	)
BALANCE OF ALLOWANCE FOR CREDIT LOSSES AT END OF YEAR, CONTINUING OPERATIONS		$	52,871			$	51,353			$	51,309			$	48,264			$	47,285
Loans outstanding at the end of period (gross), continuing operations (1)		$	4,656,522			$	4,424,702			$	3,960,637			$	3,504,307			$	3,505,385
Average loans outstanding during period (net of unearned income) (1)		$	4,493,322			$	4,228,070			$	3,644,296			$	3,536,020			$	3,218,191
Net charge-offs as a percentage of average loans outstanding			0.09	%			0.11	%			0.23	%			0.23	%			0.33	%
Allowance for credit losses, continuing operations as a percentage of nonperforming loans			401.0	%			476.5	%			276.2	%			314.4	%			268.8	%

United evaluates the adequacy of the allowance for credit losses on a quarterly basis and its loan administration policies are focused upon the risk characteristics of the loan portfolio. United’s process for evaluating the allowance is a formal company-wide process that focuses on early identification of potential problem credits and procedural discipline in managing and accounting for those credits. This process determines the appropriate level of the allowance for credit losses, allocation

among loan types and lending-related commitments, and the resulting provision for credit losses.

Allocations are made for specific commercial loans based upon management’s estimate of the borrowers’ ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loss percentages applied to loan pools that have been segregated by risk. Allocations for loans other than commercial loans are made based upon historical loss experience adjusted for current conditions. The allowance for credit losses includes estimated probable inherent but undetected losses within the portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower’s financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet fully manifested themselves in loss allocation factors. In addition, a portion of the allowance accounts for the inherent imprecision in the allowance for credit losses analysis. Over the past several years, United has grown through acquisition, and accordingly, expanded the geographic area in which it operates. As a result, historical loss experience data used to establish allocation estimates might not precisely correspond to the current portfolio in these other geographic areas.

United has continued to refine its methodology in determining the allowance for credit losses. These refinements involve the adjustment of historical loss data utilized in the evaluation of impairment on pools of loans. These improvements are judged by management to continually improve the accuracy of the estimates of impairment included in the allocated allowance. Differences between actual loan loss experience and estimates are reviewed on a quarterly basis and adjustments are made to those estimates.

United’s formal company-wide process at December 31, 2005 produced increased allocations in two of the four loan categories. The components of the allowance allocated to the real estate construction loan pool rose by $750 thousand primarily due to changes in loan volume and qualitative factors. The allowance component for commercial loans decreased $303 thousand as a result of changes in the allocation for commercial loan growth ($900 thousand) from year end 2004. The consumer loan pool allocation decreased $338 thousand primarily due to decreases in historical loss rates. The components of the allowance allocated to real estate loans remained nearly even, increasing $39 thousand. The allowance for the unfunded lending-related commitments liability increased by $746 thousand primarily due to changes in qualitative factors.

The following table presents the allocation of United’s allowance for credit losses for each of the five years ended December 31:

		December 31
		2005				2004				2003				2002				2001
		(In thousands)
Commercial, financial and agricultural		$	27,053			$	27,356			$	23,458			$	20,643			$	20,206
Real estate			6,443				6,404				4,680				10,117				10,420
Real estate construction			2,587				1,961				1,472				1,100				1,104
Consumer and other			5,842				6,179				6,234				5,437				3,656
Lending related commitments			8,733				7,987				9,731				6,643				4,115
Allowance for imprecision			2,213				1,589				5,857				4,447				7,907
			52,871				51,476				51,432				48,387				47,408
Less: Allowance for credit losses, discontinued operations			—				(123	)			(123	)			(123	)			(123	)
Total		$	52,871			$	51,353			$	51,309			$	48,264			$	47,285

As a result of the acquisitions of Century and Sequoia, historical loss experience data used in the allowance allocation estimates may not have corresponded with the characteristics of the existing portfolio.

Management believes that the allowance for credit losses of $52.87 million at December 31, 2005 is adequate to provide for probable losses on existing loans and lending-related commitments based on information currently available.

Management is not aware of any potential problem loans, trends or uncertainties that it reasonably expects will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits that cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules.

Other Income

Noninterest income has been, and will continue to be, an important element of United’s profitability. Accordingly, management continues to evaluate areas where noninterest income can be enhanced. Other income consists of all revenues which are not included in interest and fee income related to earning assets. Noninterest income from continuing operations was $52.63 million, a decrease of $1.61 million or 2.96% from the year of 2004. The decline in noninterest income from continuing operations was primarily attributable to decreased revenue from deposit services.

Service charges, commissions and fees from customer accounts decreased $1.19 million or 3.41% from 2004. This income includes charges and fees related to various banking services provided by United. The largest component within this category is fees from deposit services, which decreased $2.22 million or 7.40% for the year of 2005 as compared to the year of 2004.

Trust income and brokerage commissions increased $565 thousand or 5.37% due to an increased volume of trust and brokerage business. United continues its efforts to broaden the scope and activity of its trust and brokerage service areas, especially in the northern Virginia market, to provide additional sources of fee income that complement United’s traditional banking products and services. The northern Virginia market provides a relatively large number of potential customers with high per capita incomes.

Income from bank-owned life insurance policies increased $471 thousand or 11.00% for the year of 2005 as compared to last year’s income. Mortgage banking income increased $326 thousand or 44.72% for the year of 2005 as compared to 2004 due to higher volumes of originations and sales. All other noninterest income from continuing operations decreased $1.36 million for the year of 2005 compared to the year of 2004 due mainly to a decline in residual income from United’s interest in asset securitizations.

During 2005, United realized net gains on securities transactions of $695 thousand as compared to a net gain of $1.10 million during 2004.

Consolidated noninterest income, including net gains and losses from securities transactions, decreased $34.44 million or 39.56% for 2005 when compared to 2004. This significant decrease in consolidated noninterest income was due to income from the discontinued mortgage banking operations of Mason Mortgage being included in the consolidated results for the year 2004 including a $17.0 million gain on the sale of Mason Mortgage. No noninterest income from discontinued operations was recorded in 2005 as the sale of Mason Mortgage was completed in 2004.

Other Expense

Other expense includes all items of expense other than interest expense, the provision for credit losses and income tax expense. Noninterest expense from continuing operations for the year of 2005 was $121.16 million, a decrease of $15.90 million or 11.60% from the year of 2004. Noninterest expense from continuing operations for the year of 2004 included before-tax penalties of $18.98 million for the prepayment of FHLB advances as compared to $406 thousand for the year of 2005.

Salaries and benefits from continuing operations increased $2.67 million or 4.73% for the year of 2005 compared to the year of 2004. Salaries’ expense for 2005 was $46.01 million or 1.87% above the 2004 level due mainly to an increase in salary levels. Employee benefits increased $1.63 million or 16.59% due to higher levels of health and workers’ compensation

expenses and unemployment taxes.

Net occupancy expense from continuing operations decreased $350 thousand or 2.79% for the year of 2005 as compared to the year of 2004. The lower net occupancy expense for 2005 was due mainly to a decrease in depreciation expense on bank premises.

Equipment expense declined $581 thousand or 7.63% for the year of 2005 as compared to 2004. The decrease was primarily due to lower levels of depreciation, maintenance and other real estate owned expenses.

Data processing expense increased $1.10 million or 24.23% for year of 2005 as compared to the year of 2004. The increase was primarily due to additional outsourcing of data processing functions.

Consolidated noninterest expense decreased $33.26 million or 21.54% for the year ended December 31, 2005 as compared to the year ended 2004. The decrease in consolidated noninterest expense from the previous year was primarily due to the inclusion of expenses related to Mason Mortgage for 2004. No noninterest expense from discontinued operations was recorded in 2005 as the sale of Mason Mortgage was completed in 2004.

United’s consolidated efficiency ratio was 41.45% for the year of 2005 as compared to 49.12% for the year of 2004.

Income Taxes

For the year ended December 31, 2005, consolidated income taxes were $46.27 million, compared to $40.10 million for 2004. For the years ended December 31, 2005 and 2004, United’s effective tax rates were 31.5% and 29.1%, respectively. For further details related to income taxes, see Note L, Notes to Consolidated Financial Statements.

Quarterly Results

On a consolidated basis, all four quarters of 2005 showed increases in net income and diluted earnings per share in comparison to each of the same respective four quarters of 2004. Consolidated net income for the first quarter of 2005 was $24.76 million or $0.57 per diluted share basis compared to $23.50 million or $0.53 per diluted share in 2004. For the second quarter 2005, consolidated net income was $24.51 million or $0.57 per share compared to $24.21 million or $0.55 per diluted share in 2004. Third quarter 2005 consolidated net income was $25.45 million or $0.59 per diluted share as compared to $24.54 million or $0.56 per diluted share in 2004. Fourth quarter 2005 consolidated net income was $25.69 million or $0.60 per diluted share as compared to $25.50 million or $0.58 per diluted share in 2004.

Income from continuing operations was $25.69 million or $0.60 per diluted share for the fourth quarter of 2005 as compared to $25.50 million or $0.58 per diluted share for the fourth quarter of 2004. The results from continuing operations for the fourth quarter of 2004 included a before-tax penalty of $2.97 million for the prepayment of a FHLB advance as compared to $406 thousand for the fourth quarter 2005. In addition, United reduced its income tax expense in the fourth quarter of 2004 by approximately $2.5 million as a result of a finalized tax examination for the years 2001 through 2003. No income from discontinued operations was recorded for the fourth quarter of 2005 or 2004 as the sale of Mason Mortgage occurred in the third quarter of 2004.

Tax-equivalent net interest income from continuing operations for the fourth quarter of 2005 was $61.25 million, an increase of $5.27 million or 9.41% from the fourth quarter of 2004. This increase in tax-equivalent net interest income from continuing operations was due mainly to a $269.61 million or 4.66% increase in average earning assets as average net loans for the fourth quarter of 2005 grew $303.54 million or 7.13% over last year’s fourth quarter. In addition, the average yield on earning assets for the fourth quarter of 2005 increased 91 basis points from the fourth quarter of 2004 as a result of higher interest rates. In the fourth quarter of 2005, the net interest margin was aided by additional interest income of approximately $1.53 million from United’s asset securitization as compared to the fourth quarter of 2004. Partially offsetting these increases in net interest income for the fourth quarter of 2005 was a 90 basis point increase in the cost of funds from the fourth quarter of 2004 due to the higher interest rates. The net interest margin for the fourth quarter of 2005 increased 17 basis points to 4.03% from the fourth quarter 2004 net interest margin of 3.86%.

For the fourth quarter of 2005, the provision for credit losses was $2.06 million, an increase of $730 thousand from the fourth quarter’s provision of $1.33 million in 2004. Net charge-offs were $1.18 million for the fourth quarter of 2005 as compared to $1.45 million for the fourth quarter of 2004.

Noninterest income from continuing operations for the fourth quarter of 2005 was $13.31 million, which was an increase of $208 thousand or 1.59% from the fourth quarter of 2004 due mainly to an increase in fees from trust and brokerage services of $323 thousand or 13.19%. Noninterest expense from continuing operations decreased $386 thousand for the fourth quarter of 2005 as compared to the fourth quarter of 2004. As previously mentioned, noninterest expense from continuing operations for the fourth quarter of 2004 included before-tax penalties of $2.97 million for the prepayment of FHLB advances as compared to $406 thousand for the fourth quarter of 2005. Salaries and benefits for the fourth quarter of 2005 increased $2.09 million from the fourth quarter of 2004 due to higher levels of employee compensation and related expenses.

Additional quarterly financial data for 2005 and 2004 may be found in Note T, Notes to Consolidated Financial Statements.

The Effect of Inflation

United’s income statements generally reflect the effects of inflation. Since interest rates, loan demand and deposit levels are impacted by inflation, the resulting changes in the interest-sensitive assets and liabilities are included in net interest income. Similarly, operating expenses such as salaries, rents and maintenance include changing prices resulting from inflation. One item that would not reflect inflationary changes is depreciation expense. Subsequent to the acquisition of depreciable assets, inflation causes price levels to rise; therefore, historically presented dollar values do not reflect this inflationary condition. With inflation levels at relatively low levels and monetary and fiscal policies being implemented to keep the inflation rate increases within an acceptable range, management expects the impact of inflation would continue to be minimal in the near future.

Contractual Obligations, Commitments, Contingent Liabilities and Off-Balance Sheet Arrangements

United has various financial obligations, including contractual obligations and commitments, that may require future cash payments. The table below presents, by payment date, significant known contractual obligations to third parties as of December 31, 2005:

						Total Payments Due by Period
(In thousands)						One Year				One to				Three to				Over Five
		Total				or Less				Three Years				Five Years				Years
Deposits without a stated maturity (1)		$	2,759,442			$	2,759,442
Time deposits (2) (3)			1,951,291				1,135,610			$	611,840			$	163,221			$	40,620
Short-term borrowings (2)			858,610				843,334				15,276				—				—
Long-term borrowings (2) (3)			848,651				34,540				162,203				339,622				312,286
Operating leases			31,904				5,974				10,597				7,636				7,695

United also enters into derivative contracts, mainly to protect against adverse interest rate movements on the value of certain assets or liabilities, under which it is required to either pay cash to or receive cash from counterparties depending on changes in interest rates. Derivative contracts are carried at fair value and not notional value on the consolidated balance sheet. Because the derivative contracts recorded on the balance sheet at December 31, 2005 do not represent the amounts that may ultimately be paid under these contracts, they are excluded from the preceding table. Further discussion of derivative instruments is included in Note O, Notes to Consolidated Financial Statements.

United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. United’s maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The following tables detail the amounts of significant commitments and letters of credit as of December 31, 2005:

(In thousands)		Amount
Commitments to extend credit:
Revolving open-end secured by 1-4 residential		$	609,221
Credit card and personal revolving lines			112,383
Commercial			1,102,305
Total unused commitments		$	1,823,909
Financial standby letters of credit		$	88,889
Performance standby letters of credit			50,683
Commercial letters of credit			1,021
Total letters of credit		$	140,593

Commitments generally have fixed expiration dates or other termination clauses, generally within one year, and may require the payment of a fee. Further discussion of commitments is included in Note N, Notes to Consolidated Financial Statements.

Liquidity

In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors’ requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is “core deposits.” Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable and they are the lowest-cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds that are generally obtained as the result of a competitive bidding process.

Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day-to-day demands of customers. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity.

The goal of liquidity management is to ensure the ability to access funding that enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United’s cash needs. Liquidity is managed by monitoring funds’ availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowings, and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market.

Short-term needs can be met through a wide array of sources such as correspondent and downstream correspondent federal funds and utilization of FHLB advances.

Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, borrowings secured by bank premises or stock of United’s subsidiaries and issuances of trust preferred securities. United has no intention at this time of utilizing any long-term funding sources other than FHLB advances and long-term certificates of deposit. See Notes I and J, Notes to Consolidated Financial Statements.

Cash flows provided by continuing operations in 2005 were $112.88 million as compared to cash provided by operations during 2004 of $94.46 million. The difference in cash flows between the two years was primarily the result of increased income from continuing operations of $17.09 million in 2005 as compared to 2004. In 2005, investing activities of continuing operations used cash of $261.96 million as compared to net cash of $492.48 million used in 2004. Cash used in investing activities in 2005 and 2004 was primarily due to loan growth of $238.15 million and $467.71 million, respectively, during each year. For the year of 2005, net cash of $203.58 million was provided by financing activities primarily due to increases in total deposits of $319.89 million. Cash used in financing activities in 2005 included $44.41 million for payment of cash dividends and $41.29 million for acquisitions of United shares under the stock repurchase program. For the year of 2004, net cash of $254.33 million was provided by financing activities primarily due to increases in total deposits and net borrowings of $161.65 million and $171.10 million, respectively. Cash used in financing activities in 2004 included $43.97 million for payment of cash dividends and $40.81 million for acquisitions of United shares under the stock repurchase program. Net cash provided by discontinued operations was $42.21 million for the year 2004. The absence of cash flows from discontinued operations in 2005 did not affect liquidity or capital resources. The net effect of the cash flow activities was an increase in cash and cash equivalents of $54.50 million for the year of 2005 as compared to a decrease in cash and cash equivalents of $101.48 million for the year of 2004. See the Consolidated Statement of Cash Flows in the Consolidated Financial Statements.

United anticipates no problems in its ability to service its obligations over the next 12 months. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United’s liquidity increasing or decreasing in any material way. United also has significant lines of credit available. See Notes J and K, Notes to Consolidated Financial Statements.

The Asset and Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. No changes are anticipated in the policies of United’s Asset and Liability Committee.

Capital Resources

United’s capital position is financially sound. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders’ equity. Based on regulatory requirements, United and its banking subsidiaries are categorized as “well capitalized” institutions. United’s risk-based capital ratios of 11.28% at December 31, 2005 and 11.58% at December 31, 2004, were both significantly higher than the minimum regulatory requirements. United’s Tier I capital and leverage ratios of 10.14% and 8.53%, respectively, at December 31, 2005, are also well above minimum regulatory requirements. Being classified as a “well-capitalized” institution allows United to have special regulatory consideration in various areas. See Note R, Notes to Consolidated Financial Statements.

Total year end 2005 shareholders’ equity increased $3.70 million or less than 1% to $635.21 million from $631.51 million at December 31, 2004. United’s equity to assets ratio was 9.44% at December 31, 2005, as compared to 9.81% at December 31, 2004. The primary capital ratio, capital and reserves to total assets and reserves, was 10.15% at December 31, 2005, as compared to 10.53% at December 31, 2004. United’s average equity to average asset ratio was 9.92% and 9.98% for the years ended December 31, 2005 and 2004, respectively.

During the fourth quarter of 2005, United’s Board of Directors declared a cash dividend of $0.27 per share. Dividends per share of $1.05 for the year 2005 represented a 3% increase over the $1.02 per share paid for 2004. Total cash dividends declared to common shareholders were approximately $44.58 million for the year of 2005 as compared to $44.23 million for the year of 2004, an increase of less than 1%. The year 2005 was the 32nd consecutive year of dividend increases to United shareholders.

During the third quarter of 2004, United’s Board of Directors approved a new Stock Repurchase Plan (Repurchase Plan) to repurchase up to 1.775 million shares of United’s common stock on the open market effective upon completion of the 2003 repurchase plan. The Repurchase Plan represents approximately 4% of the issued and outstanding shares of United. The timing, price and quantity of purchases under the Repurchase Plan will be at the discretion of management, and the plan maybe be discontinued, suspended, or restarted at any time depending on the facts and circumstances. The Repurchase Plan, depending on market conditions provides capital management opportunities. Shares purchased under the plan will be available to fund employee benefit programs as well as for a variety of other corporate purposes. For the year of 2005, United repurchased 1,151,300 shares under this Repurchase Plan approved by its Board of Directors in 2004.

The following table shows selected consolidated operating and capital ratios for each of the last three years ended December 31:

		2005				2004				2003
Return on average assets			1.55	%			1.55	%			1.36	%
Return on average equity			15.66	%			15.56	%			13.86	%
Dividend payout ratio			44.39	%			45.24	%			53.36	%
Average equity to average assets ratio			9.92	%			9.98	%			9.78	%